Washington News

Phone Scams, IRAs and Tax Extensions

The IRS published multiple reminder letters this week. In IR-2017-64 the Service warned tax preparers to watch for phishing emails claiming to be from clients.

The latest tactic is for a scammer to send an email to tax preparers with a "last minute" request to change the refund destination. The change may be a direction for the IRS to send the refund to a prepaid debit card.

If a tax preparer receives a "last minute" request, he or she should verbally reconfirm the new address or card with the taxpayer.

In IR-2017-63 the Service reminded taxpayers who turned age 70½ during 2016 to take their first required minimum distribution (RMD). The initial distribution must be taken by April 1, 2017.

When you turn 70½, you are required to start distributions from a traditional IRA, 401(k), 403(b) and many other qualified retirement plans. The initial year distribution must be taken by April 1 the year after you turn age 70½. If you take your first RMD for 2016 before April 1, you will be required to take another distribution for 2017 by December 31.

For the first RMD, you will normally use the Uniform Table life expectancy at age 70½. The appropriate percentage will be multiplied times your IRA account balance on December 31, 2015.

Some workers who are still employed may delay their first distribution. This is permitted from selected workplace plans and the first distribution may be delayed until April 1 after retirement.

IRA owners may use a qualified charitable distribution (QCD) to fulfill their RMD. After age 70½, you may direct your IRA custodian to make a transfer directly to charity. The maximum qualified distribution each year is $100,000.

Extensions to file your taxes are available if you cannot complete your return by the April 18 deadline. An easy method is to use Free File and request an extension on the electronic IRS Form 4868. You still will need to estimate and pay your taxes by April 18.

Other options are to pay tax with IRS Direct Pay, Electronic Federal Tax Payment System or a credit or debit card. If you indicate your payment is for an intended extension of your time to file, IRS Form 4868 is not required.

American Health Care Act Withdrawn

After extended debate, on the afternoon of Friday March 24, Speaker of the House Paul Ryan (R-WI) withdrew the American Health Care Act (AHCA). It appeared that the bill lacked the 216 votes needed for approval.

Prior to the debate, Republican leaders and the White House attempted to gain support from both moderate and conservative groups. The House Rules Committee inserted multiple changes in the bill at the request of conservative groups.

However, by Friday, moderate Republican members indicated that the bill was becoming too conservative to garner their support.

White House Budget Director Mitch Mulroney said Thursday that the White House expected a Friday vote on AHCA. The White House published a statement and noted, "The Administration strongly supports H.R. 1628, the American Health Care Act of 2017 (AHCA). This bill begins to fulfill the President's commitment to rescue Americans from the failures of the Affordable Care Act (ACA) and expand access to affordable, quality health care. The AHCA offers patient-centered health care solutions that will promote innovation, reduce health insurance premiums and empower doctors and patients to make health care choices."

Editor's Note: The White House stated that if AHCA did not pass, it planned to set aside health care and move forward with major tax reform. If there is no further health care legislation, the employer mandate, the individual mandate, health care premium credits and the taxes of the Affordable Care Act will continue.

Conservation Groups Seek Guidance on Syndicated Easements

The Partnership for Conservation represents American land trusts, conservation organizations and landowners. In a letter to the IRS on March 22, Legal Committee Co-Chair Randy Barfield requested guidance on Notice 2017-10.

The Notice makes certain that easement gifts by partnerships or LLCs are a listed transaction. A syndicated easement with a charitable deduction of 2.5 times the investment triggers listed transaction reporting.

With a listed transaction, taxpayers and material advisors must disclose their participation with IRS Form 8918. If they fail to disclose, the penalties may be "measured in hundreds of thousands of dollars."

The Partnership for Conservation asked multiple specific questions.

1. Are land trusts material advisors because they accept a conservation easement donation from a syndicated entity?
2. If a taxpayer does not have a Reportable Transaction Number (RTN) by the filing date to include on Form 8886, is there a penalty?
3. What level of detail is needed for describing referral fees?
4. What are the landowner reporting requirements?
5. What are the specific reporting requirements for material advisors?

The IRS has announced the Applicable Federal Rate (AFR) for April of 2017. The AFR under Section 7520 for the month of April will be 2.6%. The rates for March of 2.4% or February of 2.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.